Town councils' sinking funds not substantially affected by financial turmoil
By May Wong, Channel NewsAsia | Posted: 28 October 2008 2029 hrs

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SINGAPORE : The sinking funds under all 14 PAP-managed town councils are safe and not significantly affected by the failed Lehman Brothers products.

Town councils said only a small percentage of their total investments were spent on those affected products.

Town councils use their individual sinking funds to carry works such as repairing damages at HDB (Housing & Development Board) common areas or maintaining an HDB elevator.

Every PAP town council has between S$30 million and S$150 million in their sinking funds.

Under current guidelines, each town council can use 65 per cent of their sinking funds to invest in government bonds, while up to 35 per cent can be invested in other financial instruments like corporate bonds and equities.

Although some of the town councils have purchased Lehman Brothers-linked products, the investments are minimal.

"Maybe a couple of percentage out of the total investment portfolio (were used in those investments), so the exposure will not affect the overall investment portfolio or the sinking funds per se. There's definitely no fear that any of the PAP town councils' sinking funds will be wiped out. All the supporting PAP town councils' sinking funds are in safe hands," assured Dr Teo Ho Pin, Coordinating Chairman of the 14 PAP Town Councils. He is also the mayor of North West District.

For Jurong Town Council, it has not invested in any Lehman-linked products, but explains that it only spends about 18 per cent or S$15 million of its S$84 million sinking funds in slightly riskier products.

Even then, that investment guarantees the principal amount.

"The position that we've taken is really to be very cautious with our investments because we're very clear that these are public funds, and therefore we decided to err on the side of being conservative in our investment policy. The public do not have to worry... there will not be enough funds in order to take care of their needs," said Jurong MP Halimah Yacob.

Many agree the current financial turmoil has taught the town councils that they should further diversify their investments in the future.

Going forward, town councils are expected to exercise even greater prudence when investing their sinking funds. But it's hoped that they will still be able to get up to 4 per cent of returns on their investments annually.

As for the other two town councils managed by opposition MPs, both said they do not have any investments related to the Lehman Brothers products, so their sinking funds are not affected by the failed financial instruments.

The two town councils are Potong Pasir and Hougang.

Potong Pasir has S$6 million worth of sinking funds. The constituency's MP Chiam See Tong told Channel NewsAsia that S$3 million is spent on government bonds like LTA bonds, while the other half is in the fixed deposit.


- CNA /ls